Chapter 5 Pathways to entrepreneurial ventures Objectives 1

Chapter 5 Pathways to entrepreneurial ventures

Objectives 1. To describe the major pathways that may lead to entrepreneurial ventures 2. To examine bootstrapping and minipreneurship as fast lanes to gaining entrepreneurial experience 3. To identify and discuss what is involved in acquiring an established venture that already has some entrepreneurial momentum 4. To outline key questions to ask when buying an ongoing venture that is already generating value 5. To define a franchise and outline its structure 6. To examine the benefits and drawbacks of franchising 7. To look at the route social entrepreneurs take to creating new ventures

? But first • Assuming you have the desire and enough money to make either choice, which of the following would you prefer? • Are you more likely to establish your own business ‘from scratch’ ? • Or are you more likely to take over the running of an established business? • Why?

Entrepreneurial pathways • Which way for you? • Different pathways to experiencing entrepreneurship. • Each has its own disadvantages and difficulties. • Don’t rush your decision.

Six common business-creation pathways 1. Bootstrapping 2. Minipreneurship 3. A new business start-up 4. Acquiring an existing venture 5. Buying a franchise 6. Establishing a social venture

Pathway 1: Bootstrapping • ‘Highly creative acquisition’. • Using other people’s resources. • Relies on: – networks, trust and cooperation – wise use of existing resources. • No debt / don’t give away equity. • Look for ‘low-hanging fruit’. • Use a copycat idea. See the dozens of bootstrapping ideas in Chapter 5. Chris Potter, licensed under CC Attribution 2. 0 creativecommons. org/licenses/by/2. 0/ • Find quick, break-even, cashgenerating products. • Keep growth in check. • Focus on cash for healthy, immediate returns. • Avoid loss-making strategies.

Pathway 2: Business assistance funding Chris Potter, licensed under CC Attribution 2. 0 creativecommons. org/licenses/by/2. 0/ See URL list in Table 5. 1: ‘Business development assistance in the Asia. Pacific’. • Access to funds to support start-ups and development of small businesses • Often from government • Not just about funding, also: – business information – training programs, workshops and seminars – business referrals and networks – mentoring support.

Chris Potter, licensed under CC Attribution 2. 0 creativecommons. org/licenses/by/2. 0/ Pathway 3: Minipreneurship • Do you create rather than consume goods or services? • e. Bay for product placement and marketing/ • Pay. Pal for accepting secure payments. • Niche is the new mass. • Consumerism is now about standing out rather than conforming to trends.

Selling to the long tail Chocolate Dark chocolate How to make chocolate Niche is the new mass. You only need a few thousand people in the entire world to be interested in what you offer. Where to buy cocoa beans Ivan Chew, licenced under CC Attribution 2. 0 creativecommons. org/li censes/by/2. 0/ Fairtrade and organic beans How to get cocoa beans from Samoa

Can you give your own examples of long tail products? Ivan Chew, licensed under CC Attribution 2. 0 creativecommons. org/li censes/by/2. 0/ ?

What are the main drivers behind trend towards minipreneurship? • Entrepreneurs now have access to resources and technologies previously only available to large companies. • 24/7 access to the marketplace. • Access to marketplaces. • Access to manufacturing. • Partnering with top talent. • Self-sufficiency, with a huge support network. Foodista, licensed under CC Attribution 2. 0 creativecommons. org/licens es/by/2. 0/ Australian Murray River Pink Flake Salt is available for sale 24/7.

Pathway 4: Classic start-up Chris Potter, licensed under CC Attribution 2. 0 creativecommons. org/licenses/by/2. 0/ • Entrepreneurs launch a business when they can: – drive less-innovative products out of the market – advance the product frontier – lower prices – satisfy untapped demand – broaden market penetration. • Two ways to do this: – create a unique product or service – adapt or extend something that is currently on the market

The new-new approach • Identify trends that could become products. • Try making a list of annoying products you deal with over a week (PITA products). • Common sources of ideas are prior jobs, hobbies/interests and personally identified problems. • Most business ideas tend to come from people’s experiences.

The new-new approach 1. Think about the last few days. Identify a product you have used which left you annoyed. What could be done to fix it? 2. Identify a current social or educational trend. If people were caught up in the trend, what products or services would they want? ?

The new-old approach • Rather than a totally new idea, piggyback. • Bring an existing idea to a new place. • Choose a product or service which is difficult to copy (to minimise or delay competition). Giuseppe Milo www. pixael. com, licenced under CC Attribution 2. 0 creativecommons. org/licenses/by/2. 0/

Opportunity trends • Food: gourmet chocolate, powdered alcohol drinks, special needs food, culinary tourism • Green products: fibres and textiles, solar and wind, miniature power • Business and analytics: group buying, crowdsourcing, location-based marketing • Personal and health care: niche gyms, wearable technology, medical marijuana • Mobile: bump exchange, translators, locators, ultraprivate technologies. Palcahol

The cost of start-up Adapted from US Small Business Administration, ‘Management aids’, MA 2. 025, Washington DC: US Government Printing Office • • Start-up expense calculator on p. 166. Salaries and wages Rent Advertising Delivery expenses Supplies Telephone Insurance Taxes, superannuation and other employee on -costs Interest Maintenance Legal and professional Start-up costs Fixtures and equipment Starting inventory Legal and professional fees Advertising and promotion How much will it cost to stay in business for the first year? How much revenue will the organisation generate during this time period? If outflow of cash is greater than inflow, how long will it take to ‘turn the corner’? Is the return adequate in terms of risk?

Go or no-go decisions • What is the ‘upside gain’ and ‘downside loss’? • What is the risk versus the reward? • Analytic tools covered in this book: – – opportunity analysis (Chapter 9) feasibility analysis (Chapter 12) sensitivity analysis (Chapter 15) business planning (Chapter 16)

Pathway 5: Acquiring an existing venture Chris Potter, licensed under CC Attribution 2. 0 creativecommons. org/licenses/by/2. 0/ Advantages • Future success is likely • Reduced time and effort • Possibly, a good price Diana Parkhouse, licensed under CC Attribution 2. 0 creativecommons. org/licenses/by/2. 0/, cropped from original Key questions to ask • Why is it being sold? • Current physical condition of the business? • Condition of inventory? • How many of the employees will remain? • What type of competition does the business face? • What does the company’s financial picture look like?

Chris Potter, licensed under CC Attribution 2. 0 creativecommons. org/licenses/by/2. 0/ Pathway 5: Buying a franchise • Combining independence with the larger umbrella of a corporation. • One-third of all retail sales generated by franchises. • The franchisee is generally legally independent but economically dependent. Ninian Reid, licenced under CC Attribution 2. 0 creativecommons. org/licenses/by/2. 0/, cropped from original Jim's Group, started in Perth in 1982, is now the world’s largest home franchise business.

Franchisee • A financial investment • Obtains standardised inventory • Maintains quality of performance • Pays franchise fee and a percentage of revenues Advantages • • Training and guidance Brand-name appeal A proven track record Financial assistance Franchisor • Allows use of the company name • Provides management training • Sells merchandise at wholesale • Continued support Disadvantages • Franchise fees • Franchisor control • Unfulfilled promises

Examples of green franchises • Sustainable home energy • Carbon-neutral dry cleaning • Ecological car cleaning and detailing services • Pizza makers that use hybrid cars for delivery • Rubbish removal companies that completely recycle the waste • Eco-friendly auto tune-ups • Organic lawn care • Chemical-free carpet cleaning • Energy doctors to reduce heating and cooling costs • Printer cartridge recycling Geoffrey A. Landis, licensed under CC Attribution 3. 0 Unported creativecommons. org/licenses/by/3. 0/deed. en

? Social venturing How would establishing a social venture be different to the preceding pathways?

Chris Potter, licensed under CC Attribution 2. 0 creativecommons. org/licenses/by/2. 0/ Pathway 6: Social venturing • For the entrepreneur driven by a desire to find solutions to social injustice or environmental problems. • Double challenge: – A strategy for accomplishing lasting social change – A viable profit-making business model. • Apply business skills to solve real-world challenges and capture opportunities in new market niches. Ken Banks, licensed under CC Attribution 2. 0 creativecommons. org/licenses/by/2. 0/, cropped from original Global social venture competition

Chris Potter, licensed under CC Attribution 2. 0 creativecommons. org/li censes/by/2. 0/ Models of social venturing • Social-purpose business to support or create economic opportunities for a particular target population, while referencing a financial bottom line. Non-profit enterprise Socialpurpose Businessdevelopment service Microfinance institution Cooperative Adapted from Managing the double bottom line: A business planning reference guide for social enterprises, by Sutia Kim Alter. Copyright © 2000 Sutia Kim Alter. Published by Virtue Ventures LLC.

? Key concepts (Close your books. ) 1. Name the six pathways. 2. Which pathway(s) would appeal to you and why?

Key concepts • Six common pathways: 1. 2. 3. 4. 5. 6. Bootstrapping Minipreneurship A new business start-up Acquiring an existing venture Buying a franchise Establishing a social venture • Don’t forget, we’ll be covering two more pathways: – Taking over the family business (Chapter 7) – Starting a business for your employer (Chapter 8)